311_session_8_simulation

# 311_session_8_simulation - Simulation BUAD311 Session 8 1...

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2 Objectives Generate random numbers. Simple Examples Portfolio Optimization Project Management New Product Development
Session 14 3 Why simulation? Methods to deal with randomness Build up models to have analytical solution Mimic the randomness, observe and analyze the outcome Simulation

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Session 14 4 Portfolio Example What is the expected value, standard deviation and coefficient of variation of the portfolio? Budget: \$1000 Stock t A B Current stock price 100 50 Portfolio composition 90% 10% # of share 9 2 Estimate a month later Distribution ~U[50,150] ~N(45, 3) Simulate the stock price a month later to observe the portfolio value. next
Session 14 5 Random Number Generator = RAND() generates a random variables between 0 and 1 ~ Uniform Distribution between [0,1] = 2*RAND() generates a random variable between 0 and 2 = 3 + RAND() generates a random variable between 3 an 4 = a + (b-a)*RAND() generates a random variable between a and b ~ Uniform Distribution between [a, b]

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Session 14 6 Generating Normal Distribution = NORMINV(probability, mean, standard deviation) If we assign probability = RAND() then NORMINV function generates a random variable that follows a normal distribution with specified mean and standard deviation =NORMINV(RAND(), mean, standard deviation)
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